Aussie falls, recovers on soft Chinese data

• China PMIs weaken in November
• Australian dollar loses ground
• US core PCE price index eases to 3.5%

The Australian dollar is slightly lower in Thursday trade. In the North American session, AUD/USD is trading at 0.6621, up 0.08%. The Australian dollar fell as much as 0.70% in response to soft Chinese PMIs but has bounced back and recovered all of these losses.

China’s PMIs decelerate

China’s economy is in slowdown mode and this was confirmed by weak PMI prints on Thursday. Manufacturing has been in decline for seven of the past eight months, pointing to a prolonged slump. In November, the PMI edged down to 49.5, compared to 49.5 in October and shy of the consensus estimate of 49.7. This marked the lowest level since June.

The non-manufacturing sector PMI declined to 50.2 in November, down from 50.6 in October. This points to stagnation and was the lowest reading since December 2022. The 50 level separates contraction from expansion.

The weak PMI data indicates that China, the world’s second-largest economy, may require additional policy support. The property sector is in crisis and a weakening labour market has dampened consumer spending and confidence. The government is likely to respond to the crisis with fiscal measures but could also trim interest rates in the coming months in order to support the economy.

The US core personal consumption expenditures price index eased to 0.2% m/m in October, down from 0.2% m/m in September. The annual rate, which is considered the Fed’s preferred inflation gauge, dropped to 3.5% in October as expected, down from 3.7% and falling to its lowest level since April 2021.

US second-estimate GDP for the third quarter was revised to 5.2%, up from the initial estimate of 4.9%. The sharp gain should ease fears of a recession in the US but also means that the Fed has little reason to trim rates while inflation remains well above the 2% target. The news wasn’t all good, as the consumer spending component was revised downwards to 3.6%, compared with 4% in the initial estimate.

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AUD/USD Technical

• AUD/USD tested support at 0.6606 earlier. Below, there is support at 0.6559
• 0.6650 and 0.6709 are the next resistance lines

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